Virgin Mobile will buy Helio

Virgin Mobile USA Inc. has agreed to buy Helio for about $39 million in equity.

In a release Friday, Virgin Mobile (NYSE: VM), based in Warren, N.J., said that it will buy Helio for limited partnership units equivalent to 13 million shares of Virgin Mobile class A common stock valued at $39 million based on the stock's closing price of $2.99 on Thursday.

Helio is a joint venture between SK Telecom and EarthLink Inc. (Nasdaq: ELNK). Virgin Mobile, based in Warren, N.J., was formed in mid-2002 as a joint venture between Overland Park-based Sprint Nextel Corp. (NYSE: S) and United Kingdom-based Virgin Group Ltd., each of which invested as much as $150 million. In 2007, Virgin Mobile became a public company, in which Sprint and Virgin Group remain investors.

Los Angeles-based Helio is shutting down all its high-cost kiosks and stand-alone stores and will reduce its employee count by about 65 percent, from about 570 to about 200, by the transaction's close, a Virgin Mobile spokesman said. Virgin Mobile won't cut jobs as a result of the transaction, he said. Virgin Mobile has about 450 employees.

The transaction is expected to close in the third quarter. As part of the transaction:

Virgin Group and SK Telecom each will invest $25 million in Virgin Mobile at $8.50 a share.

Virgin Mobile will improve its capital structure through increased liquidity and a $50 million payment of senior a secured credit facility.

Virgin Mobile will get an additional $60 million through its revolving credit facility, assume a maximum of $10 million in debt and $15 million in net working capital liabilities, and reduce its debt by about $35 million when the purchase closes.

The transaction will give Virgin Mobile about 170,000 Helio customers and entry into the postpaid wireless segment.

Virgin Mobile also will revise the terms of its network contract with Sprint Nextel and expects at least an 8 percent reduction in the effective cost per minute for it to use Sprint's network in 2009, with further reductions in the next three years. Sprint also will provide a $2.50 network usage credit to Virgin Mobile for each gross customer addition, capped at $10 million, effective Tuesday.